december2021 - 21

FEATURE
2022 Will See Shifting Tax Regulations in the U.S. and Abroad
By George L. Salis
IMPENDING LEGISLATION WILL likely determine the fate of tax regulations globally-or
not. A lot remains to be seen, including the final contents of President
Joe Biden's infrastructure package and details on Organisation for Economic
Co-operation and Development's (OECD) 15% global minimum tax proposal.
While there is incredible uncertainty as we
finish 2021, there are a couple major events tax
teams should be tracking, as their outcomes could
make a big difference for the 2022 tax landscape
and well beyond.
INFRASTRUCTURE BILL KEEPS
DOMESTIC TAX SCHEMES IN LIMBO
Businesses will need to keep up with a dancing
landscape of regulations across the United States,
many of which will hinge on what kind of state
and local funding President Biden's infrastructure
bill flows down to those governments. The
uncertain economic outlook will depend on many
interdependent factors and potentially result in a
volatile regulatory landscape fraught with risks for
businesses.
For example, federal lawmakers from high-cost
states have been pushing for the infrastructure
package to include a repeal of the $10,000 cap on
the state and local tax (SALT) deduction. However,
that would cost Congress an estimated $80 billion
a year, which makes it a difficult sell for legislators.
Should the SALT deduction be kept in place,
states like New York and California could look for
other ways to fill state and local budget gaps. In fact,
we've already seen state and local governments
(SLGs) finding creative ways to expand their tax
bases in 2021 and most are targeting sales and
transaction taxes.
Those taxes already make up 33% percent of
SLG budgets in jurisdictions that charge sales and
use tax. It is also far easier to administer, remit and
audit sales tax due to fewer exemptions and more
frequent collections, so it's clear why governments
are taking this tack. To date, this controversy continues
in the light of new congressional initiatives
and legislation.
AMBIGUITY AND UNCERTAINTY
REMAIN AROUND DIGITAL SERVICES
TAXES IN THE EU, UK, AND OTHER
COUNTRIES WITH " UNILATERAL "
DST REGIMES
The OECD's proposal for a global minimum tax was
meant, in part, to quell an uprising of unilateral digital
services taxes in EU countries, and elsewhere. In
fact, after 136 countries participating in the OECD's
Inclusive Framework agreed to a minimum tax rate
of 15% for the top 100 big tech companies and to
curve tax avoidance through tax havens, on October
19, U.S. officials announced they were close to reaching
an agreement with the U.K., France, Italy, Spain
and Austria to suspend their DSTs when the global
minimum tax comes into force. Later in October,
in a joint statement, the U.K., France, Italy, Austria,
and Spain, announced that they would repeal their
national 'Digital Services Taxes' (DSTs).
However, a treaty or international convention
will be necessary to implement new global tax rules,
which will impact tax regulations in ways we yet
cannot fully predict. But, when exactly that will happen
is unclear, at best, since the global agreement
still must be approved by national legislative bodies
in the countries that signed on.
While this could be a real breakthrough for big
U.S. tech companies who have fought these countryspecific
DSTs as they've popped up over the last two
years, it just means more risk and uncertainty for
how and when businesses should be collecting and
remitting taxes on digital services in EU countries,
the U.K. and many other countries, as some recalcitrant
countries did not join the agreement, and
others have yet to decide.
Since the deal would mean that countries would
need to drop their DSTs once the global minimum
tax is codified in the next couple years, countries
with DSTs could choose any time to drop those
taxes. In fact, less than a week before the DST deal
was announced, Italy said it would likely keep its
DSTs in place until at least 2024.
This is a very " complex " time for the international
tax landscape. Moving parts that we could
have never imagined even a couple years ago have
changed-and are still changing-the way states,
countries and continents devise and implement
new and expanded tax schemes. The ripples and
implications are surely to be felt in matured and
developing nations, and of course, across both
direct and indirect tax regimes, as in the end, all
commerce is based on transactions.
There's still much to be determined, so it
would be foolhardy to make big predictions. But
one thing is clear. Businesses and their tax teams
need to watch these developments closely or risk
non-compliance. ■
George L. Salis is principal economist & tax policy advisor
at Vertex, Inc.
DECEMBER 2021 ■ www.CPAPracticeAdvisor.com
21
http://www.CPAPracticeAdvisor.com
december2021

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